THE BLOG
06/15/2007 03:02 pm ET Updated May 25, 2011

Is News Corp. Foreshadowing the Fate of Local TV?

News Corp. is planning to sell nine of its 35 local TV stations, mostly in medium-sized markets. The stations are profitable and should bring between $1.3-$1.5 billion. A News Corp. spokesperson said the company is selling the stations for strategic reasons. Strategic reasons? Most analysts agree, News Corp. doesn't need the cash (even with the pending Dow Jones purchase), so why dump the stations now?

Some industry analysts say that the rise of cable and satellite TV has cut into local ad sales and the Internet is a fast-emerging competitor. That may be so, but local broadcast stations are facing a host of other problems. What does their future hold? We could look to the past to see into the future.

In the early days of radio, program directors ran the stations. They were the highest paid executives and it was their ability to aggregate a loyal audience that drove revenue.

As the business matured, sales became the key to profitability. And, in the 1970s the powerbase of station management transitioned from programming to sales. By the late 1980s most stations managers had come up the ranks as salespeople.

As the M&A craze hit the business, pure financial management replaced sales-oriented management, which is where the business is predominantly today.

During these decades of transition, the radio business became "channelized." Stations worked hard to associate themselves with a "format" so that they could present a branded, demographically unified product to advertisers. You are personally familiar with the names of some of these formats. Many are simply intuitive: Rock, Top 40, R&B, Country, Jazz, Classical, etc.

Once the business was segmented into formats, it was easy to centralize the programming and replace expensive locally produced content with syndicated fodder. Did you really need a live DJ spinning classical records? Of course not. You could easily take a feed from a central location and insert local advertising where appropriate.

This automated environment pervades the radio business today. Most stations are run by very few people (some are just transmitters with a couple of engineers making sure the signal is live).

When you take a scarce resource such as government granted airwaves and propagate radio signals over them at little or no cost, you will make money. That is the overwhelming reality of local radio in 2007. Take a broadcast license, reduce your costs to the absolute minimum and turn a profit.

This seems like a very probable future for the local broadcast television industry. There is too much competition from other media and there are too many local television stations all trying to broadcast almost identical local content. The winners will reduce their costs to the highest possible degree.

It is important to understand that not every broadcast television station will suffer this fate. Most major market television stations probably will not. However, the vast majority of television stations are not in the top 25 markets and these stations are particularly vulnerable to the technical and economic pressures that are in the offing.

One can easily imagine a vast network of fully automated television stations across America with most of their revenue coming from the use of their new government granted digital spectrum. Not exactly their father's TV business, but then again -- Dad didn't sell his TV stations for "strategic reasons" ... he bought them.